Watching international financial policy persisting on a concept to fight
debt with more debt in an environment where official GDP growth rates
only remain positive because of ridiculously low deflators, while
interest rates apart from those central bank help for banks via
laughingly low interest rates begin to surge everywhere else, this
observer begins to wonder if one can expect anything else than a
fast-rolling, simultaneous European banking collapse.

Engulfed in more exponentially rising debt on public and private levels
than ever before there simply cannot be another end of the longest
growth cycle in history than a simultaneous collapse of international
banking when lending freezes up due to fears about the real
creditworthiness of the respective counter party.

Globalization will have made it possible.

Bank Reserve Requirements: EU 2% - China 21%

The rise of supra-regional financial institutions that have evolved from
two decades of radical deregulation of financial markets and are now
too big to fail overshadows all major industrial nations as it has given
birth to unprecedented bulks risks never seen before. The situation
gets aggravated by the fact that banks have never held more derivatives
than nowadays.
At a notional volume of $580 trillion as of 2010 derivatives now exceed
global GDP of roughly $50 trillion by a factor of 12. It strongly
appears this world is overleveraged as derivatives volumes have remained
at this level for the last 3 years.

Minimum reserve requirements of a paltry 2% in the Eurozone mean that
European banks are geared 1:50 (and possibly higher through the use of
off balance sheet vehicles). An adverse 2% move of markets can wipe out
any bank overnight.

Compare this with China where minimum reserve requirements have been raised to a staggering 21% in order to curb speculative lending.
But while China takes aggressive steps in order to reduce private
indebtment the Western world remains in wishful mode. A lot has been
written about national debts, sitting at record levels and rising
strongly due to investors suddenly asking higher risk premiums for
government debt like Greece's, where 2-year issues now yield above 25%,
confirming the foreseeable default of a country that was bankrupt one
out of two years in the last two centuries.

The stream of news has not changed much since late last year when the EU
inofficially split into the Euro hardcore area of AAA-rated Germany,
Austria, Finland, Luxembourg and the Netherlands and the risky rest
which is only half represented under the acronym PIIGS.
I do not include AAA-borrower France in the core group as it is heavily
exposed to the coming Spanish and Italian crisis which will have the
same roots as all banking crises around the world: reckless lending to
irresponsible public and private borrowers that fuelled a property boom
thanks to the lowest interest rates in history. Holding Greek bonds with
a volume of €54 billion, French and German banks were the main
benefactors of Greece's first €100 billion bailout in May 2010.

The hard landing is only a question of time. European politicians are
stuck in a deadlock over the resolve of the crisis while tending to lend
their ears to bankers who are trying to cover their ass as their low
interest rate strategies will not work any longer in a world of surging
commodity inflation that will take its toll on consumers and and
industry alike.

With the creation of a monetary union without a fiscal union the Euro
will become the death trap of the old continent as the inventors of the
common currency raced down a one-way street, never thinking about the
possibility of an exit of a Euro member.

Current negotiations on an inevitable restructuring of Greek debt have
not moved since last winter. Recent discussions to extend Greek debt for
7 years beyond maturity will lead into the same dead end all previous
meetings have ended before as governments shy away from calling to
account private debt holders.

This preference of investors over taxpayers has led to the mess we are
in. Regaled investors bulk at the idea of a haircut and force
governments with the threat of withdrawal from their debt auctions to
keep the status quo where they are essentially bailed out by taxpayers.

This does not go down well with 500 million European non-millionaires
who have been squeezed between stagnating salaries and doubling of costs
since the introduction of the Euro 10 years ago.

Massive protests against austerity programs have been spreading in
Europe since a year. Beginning in Greece a wave of protests has
mushroomed to London, Paris, Madrid, Barcelona, Lisbon, Berlin and
Brussels.

These protests against an "everything for banks and austerity for the
people" policy are justified by the global economic outlook best
described as stagflation giving way to hyper inflationary depression.

Banks are playing a losing game as their recapitalization dreams rest on
a foundation of a artificially low central bank interest rates coupled
with high yielding government debt. It is certainly a winner's game to
borrow money at 1.25%, only to turn around and buy German Bunds yielding
3%.

The ESM Is A Subprime Construct

As investors almost fist-fight for German government bonds, chancellor
Angela Merkel's is certainly getting moneyed support from investors who
realize that all their other holdings may turn into ashes if Germany
does not keep firing the European debt engine at lower yields than any
other Euro country.

Alas, the idea of finding cheaper money for the European deficit
spenders will stall in its own tracks as the so called European
Stability Mechanism (ESM) is inherently flawed. European politicians
nurse the hope that the ESM will be able to borrow money at rates close
to Germany's financing costs. The achilles heel of the ESM are its
members. So far Greece, Ireland and Portugal will be on the receving end
of the ESM, leaving only 14 countries - among them the insignificants
like Cyprus etc. - to back the fresh debt.

As only 6 nations in the Eurozone are left with an AAA rating it is a
miracle how rating agencies can rate this new debt again with AAA,
repeating the CDO failures and aiding irresponsible European politicians
in making subprime a business model for a whole continent!
Total issued government debt of the Eurozone stood at €5.9 Trillion in May 2011.

Current Greek bailout reports yo-yo between €70 billion and €100 billion for the second attempt to fix Greece.

Transpose this onto Ireland and Portugal and it looks likely that the
€750 billion ESM will run dry even before it comes into reality in 2013.
The pressure to increase capital ratios under new international rules
between 2013 and 2019 according to plans of the Bank for International
Settlements (BIS) is designed to suffocate the economy meanwhile,
intensifying the beginning of the Kondratieff winter.

As banks have to increase their capital set against private and business
loans, a credit crunch is written on the wall, and it will be boosted
by higher interest rates as lenders will compete for money.

At the same time banks will be able to continue to zero-weight
government debt in their portfolios according to new proposals by the
European Commission in 500-page legal paper "CRDIV".

This is clearly a head-in-the-sand strategy. All Euro members can be
safely assigned a negative rating outlook at this point of time and such
a weighting will again only delay, but never mitigate the banking
sector's problems.

The Coming Giga-Credit Event

So far I have not met a critical member of the financial industry
recently who disagreed about the high possibility that the failure of
one of Europe's top 25 banks may start a simultaneous European banking
collapse because markets are intertwined as never before.

When one of these banks cannot meet its obligations, leaving countless
counter parties without expected funds, the dominoes will fall at
unprecedented speed in a realtime financial world.

It all could happen within 24 hours from the breakdown of a major bank
to a Europe-wide market holiday in an attempt to stop the unstoppable:
The reduction of the banking sector to a size that meets the needs of
the economy and not the needs of the bankers.
No industry has expanded more than the financial industry in the past
four decades, turning not only Europe, but most parts of the world into
overbanked territory.

Given the long delay in restructuring banking - the most important step
will be to regulate financial derivatives - thanks to a clueless
political elite in the EU, and the subsequent continued buildup of still
more risks a meltdown initiated by early market rumors trickling down
into media is the most likely end scenario.

In the past, financial crises were limited to the reach of the affected
currency. As the Euro now unites 17 countries in a monetary union that
was achieved by political will and not by reason, these 17 members now
man a ship with a lot of deficit holes. Finding themselves in a
financial tsunami, one or more countries will jump at some point.

It could be anybody. Either a weak Euro member seeking rescue by exiting
the Euro and devaluing its own new currency while KOing investors with a
bond haircut or a core Euro member pulling the emergency break and
leaving the mess behind it.

Either way it goes it will lead to a discussion about the future
integration of Europe as the concept of paying your neighbor's debts has
never worked before.

This is hillarious. China as a poster child for financial prudence? WTF?? Not that European banks were sound. But comparing them to China?? Reuters just reported a 460 bn $ bail-out for bad loans (infracstructure projects). All bigger chinese banks have plenty of off-balance sheet loans and investments. The 21% MRR is a complete joke if the banks can hide all the stuff off-balance and are forced/incentiviced to take on billions in loans that can never be repaid right from the day they are handed out. But of course China does not need to print $$ to bail itself out. they are coming directly from Ben in retuirn for all the ipods, ipads, iphones etc. that the US consumes by paying wit IOUs

Even worse than this is the fact that the balance sheet of the European Central Bank is in a dreadful state due to all the low quality (junk) collateral it has on its books. the economist Shaun Richards has been pursuing this subject for some months now and on todays update we get.

The problems and possible insolvency of the European Central Bank gets a wider audience at last....

Another Problem the Central Banks have the wrong amount of debt

When I looked at these holdings it occurred to me that they are the wrong amount. Let me explain with reference to the Central Bank of Ireland. According to its 2010 accounts it was holding some 2.3 billion Euros of debt under the SMP at the year-end, but if we take its ECB ”share” or capital key of 1.59% it should have been holding more like just under 1.2 billion Euros. Are the nations in trouble being forced to hold more than their share? Not much of a rescue is it if they are?

How is anyone going to regulate away 700trln of derivatives? No one even wants to think about looking at it - its like a dead body hidden under the bed; that's why we wont see that kind of collapse anytime soon, because a pan-european bank collapse would force the reality that these bets can never be squared.

What happens once more countries start to default? If Iceland, Greece, Ireland, Portugal and more are defaulting, where will the discipline of isolation land the IMF? What if the US defaults? At that point, there will be no discipline and the system crashes.

The penalty will no longer be effective. Heck, defaulting countries could create trade blocs to mitigate isolation.

Look for the collapse and reset to be the exact same system with new terminology, new leadership and the same old structure. This time "they" will get it "right" with regulations enforced "equally" to insure this kind of irresponsible behavior never happens again!

Just like after the banks raped the public in every other episode through history. Nothing changes as long as you have governments that require you trade liberty for security and organization. Government is the police power of the banks.

Of course it is. Without government you can't execute your creditor rights. Without state repression any debtor would simply go away from the debt making creditor's asset worthless and debt money strongly devalued.

Banks were a great founding source for government Ponzi-Scheme. But since world has hit debt saturation level, banks are no more a useful.

When one of these banks cannot meet its obligations, leaving countless counter parties without expected funds, the dominoes will fall at unprecedented speed in a realtime financial world. It all could happen within 24 hours from the breakdown of a major bank ...

The lesson from 08 tells me even though there will be signs of a systemic collapse , most of us will ignore them or think we can leave it right till the last minute. It takes at least 48 hours to withdraw large amounts of cash from a bank a/c. And even longer to get it out of a broker. I suspect when these bank holidays occur , savers and investors are going to get the mother of all ass rapings when they come out the other side. Think its time i took my ball home and watched.

"Minimum reserve requirements of a paltry 2% in the Eurozone mean that European banks are geared 1:50 (and possibly higher through the use of off balance sheet vehicles). An adverse 2% move of markets can wipe out any bank overnight."

Thank You, Oddly enough, I didn't know that. I had tought that US were the worst.

I'd rather head for the hills, and then figure out whether to laugh or to cry.

I'm sure the figure is real or at least thereabouts - back in 2008-2009 there were comparisons made between the EU and US bank systems, and I clearly remember that in the EU there were several banks with ratios in excess of 1:50.

However if there's a legal basis for that I fully expect it to be well camouflaged in the jungle of legislation that EU law has always been, and not be stipulated in a simple, clearly worded unique paragraph that any moron could read and understand with ease.

White man came across the sea
He brought us pain and misery
He killed our tribes, he killed our creed
He took our game for his own need

We fought him hard we fought him well
Out on the plains we gave him hell
But many came too much for Cree
Oh will we ever be set free?

Riding through dust clouds and barren wastes
Galloping hard on the plains
Chasing the redskins back to their holes
Fighting them at their own game
Murder for freedom a stab in the back
Women and children and cowards attack

Run to the hills, run for your lives
Run to the hills, run for your lives

Soldier blue in the barren wastes
Hunting and killing their game
Raping the women and wasting the men
The only good Indians are tame
Selling them whiskey and taking their gold
Enslaving the young and destroying the old

And what is the comparable % for US Banks, since the top 5 US banks alone have over 35% of that $601 trillion ($201B or 14 YEARS of US GDP) in derivatives exposure? Minor change in the credit markets and 50:1 leverage is chump change.

There is so much money to be made in this unstoppable reset if your not on the wrong side not only will you never have to work again but you will be buying home 70% lower from here and stocks for a song.

There is beautiful business model that awaits in creating a bank that is imposes it's own Glass- Steagall firewall and assures it's customers their deposits will never be in danger of a financial collapse at the hands of an over levered investment banking arm. The walls of the world can one crashing down and you can take solace knowing that we are immune. Heck I bet most folks would gladly pay banking fees for traditional banking and not this monster that has been created. As a matter of fact we could even create a number of storage vaults for metals.

That is my frustration with this type of article. I understand the arguments and the scenario. They all seem to be logical. The question is "when, when, when?". TPTB and their ponzi has an amazing capability to continue on and on. Whoever said the markets can stay irrational longer than you can stay solvent was a genius.

Any complaint that central banks have the "wrong kind" of debt miss the point. Central banks are the ultimate fiat instrument. They can swap totally worthless debt instruments for fiat money to bail out the original holder of the debt, and in the process they simply declare a fiction to be true. And everyone downstream of the deal accepts the fiction: that the central bank's balance sheet supports the fiat money.

We are so far removed from actual value-for-value transactions that we are in LaLaLand.

It talks about Cyprus being safe and insignificant becuase it is small but Cyprus must be in financial trouble as well as it was dependent on selling properties to UK investors and tourism.

Cyprus has priced itself out of tourism since it joined the EC (restaurants and hotels appear to be empty to me and a lot with illegal labour from Montenegro and the Balkans). The property development side has come to a halt on sales to Europeans. I would say that Cyprus is surviving purley on money laundering, drug and arms deals of the Russians.

It talks about Cyprus being safe and insignificant becuase it is small but Cyprus must be in financial trouble as well as it was dependent on selling properties to UK investors and tourism.

Cyprus has priced itself out of tourism since it joined the EC (restaurants and hotels appear to be empty to me and a lot with illegal labour from Montenegro and the Balkans). The property development side has come to a halt on sales to Europeans. I would say that Cyprus is surviving purley on money laundering, drug and arms deals of the Russians.

It talks about Cyprus being safe and insignificant becuase it is small but Cyprus must be in financial trouble as well as it was dependent on selling properties to UK investors and tourism.

Cyprus has priced itself out of tourism since it joined the EC (restaurants and hotels appear to be empty to me and a lot with illegal labour from Montenegro and the Balkans). The property development side has come to a halt on sales to Europeans. I would say that Cyprus is surviving purley on money laundering, drug and arms deals of the Russians.

It talks about Cyprus being safe and insignificant becuase it is small but Cyprus must be in financial trouble as well as it was dependent on selling properties to UK investors and tourism.

Cyprus has priced itself out of tourism since it joined the EC (restaurants and hotels appear to be empty to me and a lot with illegal labour from Montenegro and the Balkans). The property development side has come to a halt on sales to Europeans. I would say that Cyprus is surviving purley on money laundering, drug and arms deals of the Russians.

It talks about Cyprus being safe and insignificant becuase it is small but Cyprus must be in financial trouble as well as it was dependent on selling properties to UK investors and tourism.

Cyprus has priced itself out of tourism since it joined the EC (restaurants and hotels appear to be empty to me and a lot with illegal labour from Montenegro and the Balkans). The property development side has come to a halt on sales to Europeans. I would say that Cyprus is surviving purley on money laundering, drug and arms deals of the Russians.

It talks about Cyprus being safe and insignificant becuase it is small but Cyprus must be in financial trouble as well as it was dependent on selling properties to UK investors and tourism.

Cyprus has priced itself out of tourism since it joined the EC (restaurants and hotels appear to be empty to me and a lot with illegal labour from Montenegro and the Balkans). The property development side has come to a halt on sales to Europeans. I would say that Cyprus is surviving purley on money laundering, drug and arms deals of the Russians.

Ok. I have a question in the back of my mind that, so far, no one has been able or willing to answer in any article / blog / new release, etc. that I have read in the last year. I hope it will generate some REAL discussion, rather than just a bunch of smart ass, "anecdotal evidence" comments & opinions.

Here the question: What will REALLY happen in the world, particularly the US, when the EU, US, Wall Street or China has a financial meltdown and the banksters go tits up? Really, what will happen?

I see it this way. The houses will still be there, the farms are still growing food, the factories are still operating, the electrical grid is still pumping out electricity, the streets will not magically disappear, the cars will still be taking people to work, oil will still be flowing from the ground, etc., etc., etc.

The only major issue I can see is that a LOT of banks, shareholders, politicians and a variety of other dirtbags, are going to lose their asses, and then some when it happens. Note that I say WHEN, not IF, it happens.

Unfortunately, a lot of regular folks are going to be hurt too when the over-leveraged hedge funds that their 401(K)'s are invested in tank.

I think you are fooling yourself. My experience e.g., upon a medium snowstorm, in the US after two days there was only an orphan onion on the shelves in a major chain groceries. Gas runs out even faster.

No roads, no transports. Money is like the road connecting all the economic participants. When money dies economy dies.

Fortunately, these current events will kill only the currency. Money will come out and function if allowed. Make it sure that money is safe to be used and everything will be OK. But that is an ideological, political and moral issue not just economics. Otherwise, panic!

Here we go round the prickly pear
Prickly pear prickly pear
Here we go round the prickly pear
At five o'clock in the morning.
Between the idea
And the reality
Between the motion
And the act
Falls the Shadow
For Thine is the Kingdom
Between the conception
And the creation
Between the emotion
And the response
Falls the Shadow
Life is very long
Between the desire
And the spasm
Between the potency
And the existence
Between the essence
And the descent
Falls the Shadow
For Thine is the Kingdom
For Thine is
Life is
For Thine is the
This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.